6. After the RO ... what next for Future Energy?

With the Renewables Obligation soon to be in force, the green power retail market should begin to settle down. In particular the fate of the so called ‘voluntary’ schemes accredited under the Energy Saving Trusts ‘Future Energy’ scheme, which was first launched in July 1999, has become a little clearer.

Last Sept., with the statutory consultations into the Renewable Obligation (RO in England and Wales, ROS in Scotland) underway, the Energy Saving Trust (EST) carried out its own consultation on, and review of, the remaining Future Energy schemes. In its review it noted that ‘the guiding aim of Future Energy is to lead to the development of additional renewable electricity generation’ and it reported that ‘during the first 21 months of operation, (i.e. to 1st April 2001), a total of 16 offerings from 13 different suppliers were accredited. These covered a range of non-domestic and domestic supply offerings and funds, with over 20,000 customers signed up. Electricity sales for accredited domestic offerings were 50 GWh in 2000/01 and for non-domestic offerings were 72 GWh, with corresponding CO2 savings of 13,000 tC/a. In addition, over £150,000 had been raised through the funds offerings (which included monies contributed by the supply companies themselves)’.

Following the introduction of the Climate Change Levy last April, EST had decided that it would no longer accredit non-domestic supply green power schemes, since, in effect, that was being taken over by OFGEM and Customs and Excise. That reduced the number of EST accredited offerings to 12. Other factors contributed to further reductions in the number of accredited offerings- one company merged two of its separate offerings; another newly- merged supplier with two offerings no longer wished to be accredited;

As a result, there are now 8 offerings accredited under Future Energy, from 7 different supply groups. Despite the reduced number of offerings, the EST noted that the number of customers on accredited offerings is still over 20,000. Indeed, it says that ‘customer numbers for currently accredited offerings have grown by over 60% in the last 12 months, indicating that these offerings continue to attract new subscribers’.

However, the Renewables Obligation meant that there would have to be changes. Under the RO, all licensed electricity suppliers are required to source a growing percentage of their total sales from eligible renewable sources with verification achieved by means of Renewable Obligation Certificates (ROCs), issued for each MWh of renewable electricity generated from qualifying accredited renewable generators.

The Government stated in its Statutory Consultation that green tariffs should not be used to meet a supplier’s costs in fulfilling their obligation, a view shared by the EST- and also, most likely, by consumers- who would not want any premium they paid to go to helping companies meet their obligation. Instead they would presumably prefer the money to support the development and use of extra generation capacity, additional to and outside of the RO. Certainly that was the view of the Government.

However, meeting this ‘additionality’ criteria would be hard, at least for domestic supply schemes- where companies promise to match consumers electricity use with green supplies. In its Autumn 2000 consultation, EST suggested that there would in fact be little, if any, extra qualifying renewable energy available for sale into the voluntary domestic market, since the Obligation targets were designed to be challenging and there was therefore unlikely to be much, if any, surplus capacity available for sale outside the Obligation. In addition, the price premium, if passed on in full to customers, would be around 3 p/kWh, since this is the amount of revenue the supplier would lose out on by not using the ROC to meet his target (or to sell to another supplier). This equates to a 50% premium on domestic electricity prices, which EST felt would be acceptable to only a very small fraction of domestic consumers.

In its Sept. 2001 consultation paper, EST say that their views on this have not changed, but note that ‘at least one electricity supplier has indicated they would like to operate green tariffs in this manner’. They comment that ‘if such tariffs are indeed offered to the domestic market, the Trust believes that the only effective way of ensuring additionality would be for a supplier to redeem ROCs against green tariff sales, rather than against a supplier’s target. We believe it may be possible for a voluntary system to be established, under which participating suppliers allocate ROCs to green tariffs, rather than redeeming them against their obligations. Under such an arrangement, it would be possible for the supplier’s offering to be "branded" as being green by means of the Future Energy logo. Such branding may be important in a market where a range of tariffs is offered to householders, some with true additionality and others without’.

EST are clearly not that enthusiastic about this approach, arguing that ‘while redeeming ROCs against a green tariff would ensure additionality, we believe there would be hardly any voluntary market activity if it became the only option open to suppliers. This would be in sharp contrast to the situation which exists today, and which appears to be becoming of greater importance to both suppliers and NGOs, as witnessed by recent market activity’, and they refer to the Juice tariff by npower, backed by Greenpeace; the recent endorsement of Powergen’s Greenplan offering by WWF; and Scottish and Southern’s RSPB Energy offering.

Of course, it may be that some of these schemes will not lead to much extra capacity. In particular, as we noted in Renew 135, npowers new zero premium scheme, Juice, had raised some eyebrows by proposing (if we understand it right) to use the power sold to consumers for the RO, but not to claim Levy Exemption Credits for power sold to companies under the Climate Change Levy exemption arrangement. The problem then was there would not be so much of an incentive to invest in new capacity. ENDS commented, critically, that the only real outcome might be general awareness of the value of renewables.

That would be something of a retreat from the earlier vision of consumers contributing to significant growth in new generation capacity. But this retreat seems to be at least partly what the government has in mind. As we noted in Renew 135, in its consultation document on the RO, it saw green power schemes as an important role in promoting and ‘raising awareness’ of renewable energy.

EST then attempt to follow through the implications of this approach, arguing that ‘the question which needs to be addressed is whether green tariffs can be developed to meet DTI’s objectives of promoting and raising awareness of renewable energy while leading to additional generation over and above a supplier’s obligation’.

Their Autumn 2000 consultation into Future Energy had indicated that "no premium" green tariffs were primarily a means of raising awareness, and in the new paper they add ‘such activity would not lead directly to additional capacity, but its impact would be more indirect. Suppliers could keep green tariffs customers informed of issues relating to renewable energy, including for example details of local planned or existing renewable generating plant’.

However, the EST is clearly not happy with this trend. It adds ‘while such tariffs could usefully raise awareness of renewables, there is a risk of a false "feel good factor" if customers believe that signing up to a green tariff results in itself in an additional positive environmental benefit, beyond that achieved by the Obligation on suppliers. Paradoxically, the backing of environmental NGOs may reinforce the false feel good factor, as customers may be less inclined to study the detail of the green tariff, relying instead on the existence of a "reassuring" logo’.

And EST then come off the fence entirely and conclude that ‘it is clear that such tariffs do not meet the DTI criteria, nor do they further the guiding aims and objectives of Future Energy, which is to lead to the development of additional renewable electricity generation. The Trust feels it cannot accredit tariffs where there is no additionality. We conclude that, unless a voluntary ROC redemption mechanism can be established, Future Energy accreditation for supply offerings cannot continue to operate in its current form once the Obligation is launched’.

This leaves a separate issue as to what is an acceptable green tariff now that the Obligation has been introduced, and EST focuses on the fund schemes. It notes that ‘although uptake of funds has been lower than supply offerings to date, they may have a role to play in developing the renewable energy market by funding new capacity. The building of new renewable plant, particularly small scale or community level, can be used to promote and raise awareness of renewable energy among householders’.

However, they add that, ‘as with supply offerings, it is important that renewable energy funds are not used by suppliers to help them meet the cost of the Obligation. In practice, this can only be achieved if capacity which has been financed (either fully or partially) by such funds is ineligible for ROC’s. Alternatively, funds could be used to support renewable installations which would otherwise not have gone ahead. Once commissioned, they would be eligible for ROCs’.

EST say that ‘such installations can and should have an important educational role, for example among school children or within communities. Financial criteria will need to be established to determine the basis on which support can be provided. We conclude there is a possible role for Future Energy funds to support small scale renewable energy installations, as long as there is an educational/promotional element’.

While that may be true, it does look rather marginal. The small scale community projects that have been supported by the £150,000 raised so far by fund schemes are all no doubt worthy, but they don’t add much generation capacity. Of course it could be that the fund schemes will grow, so that it would begin to add to capacity significantly - outside of the RO, at least initially. However,while EST seem keen to support the fund schemes, they don’t seem to see them growing very large, but rather as contributing mainly to the ‘awareness’goal. Thus they argue that ‘renewable energy funds can lead to installations going ahead which would otherwise have been uneconomic. Where such installations are small scale, at the household or community level, we believe they have the potential to play a role in raising awareness of renewables’.

Overall then EST seems to want Future Energy to be much reduced in scope, and limited to the fund schemes. Indeed they even accept the idea of Future Energy being wound up entirely. After all some companies have gone ahead with supply schemes without seeking EST accreditation, so maybe it’s not that vital. However, to be fair, they do also mention some other potential roles. ‘There may be new areas where accreditation can play a role in building confidence in the market, for example in the accreditation of PV products and installers under the Government’s solar roofs programme. We believe it is very important for the long term viability of this industry for quality standards to be agreed and maintained from the very start- otherwise, irreparable damage may be caused if the perception of a "cowboy" industry were to develop.’

More generally, they talk of EST possibly playing an educational role - promoting renewables to a wider public. ‘It is important to create a positive attitude towards renewables in order to enable them to fully play their role in the UK’s move towards a sustainable future’.

There’s nothing wrong with that- it’s what we try do via RENEW and NATTA. But it does seem a far cry from the original purpose of Future Energy- to lead directly to the development of additional renewable electricity generation.

Responses to the new EST Consultation

Most respondents to the Sept. 2000 EST consultation evidently agreed that the original purpose of Future Energy would no longer be relevant once the Obligation commenced, but nearly all respondents felt there should be a continuation of consumer-focused renewable activities, either within the context of a revised Future Energy scheme or with a new Government-backed promotional vehicle. The most common view was for Future Energy to continue to accredit offerings, but to amend the terms of the scheme to cover a broader the range of options more in line with the new market conditions.

In its reply to this feedback, EST noted that Ofgem is developing guidance on green tariffs, to coincide with the introduction of the Obligation, which will set out the types of offering which might be considered green in future (i.e. once the Obligation is in place). So EST has proposed that the next stage is to work alongside the Ofgem guidelines.

At the same time, they believe there is ‘an opportunity for Future Energy to be used more widely as a vehicle to raise awareness of renewables among the general public. Indeed, some respondents commented that there had been insufficient promotion and marketing of the brand’. The reason for this, they say, is that ‘the original proposal for Future Energy envisaged most ongoing marketing to be undertaken by energy suppliers, such that Government funding was limited primarily to the initial launch. In practice, suppliers focused their marketing effort on their green tariffs, rather than Future Energy, and EST did not have the resources to co-ordinate more fully with their marketing activities. It is clear that more funding would be required to provide core marketing and promotional services’. Well maybe so. But that’s water under the bridge. For the moment, EST proposes to enter into discussion with Ofgem with a view to developing Future Energy to be compatible with Ofgem’s guidelines for green tariffs; consider the full scope of the marketing potential of Future Energy as a consumer-focused identity supported jointly by industry and Government; and, separately from the issue of green tariffs, develop criteria for the accreditation of renewable energy products and installers under the Future Energy brand.

* For more, see ‘Greening Electricity’, NATTA’s compilation of reports from Renew on green power markets £2. Draft OFGEM Guidelines are now out on www.ofgem.gov.uk